Wednesday, 20 October 2010

The spending review: key questions and the democratic deficit

Next Left will take part in a live blog reacting to the spending review - from midday - one in the regular series of major event liveblogs cohosted by Left Foot Forward, LabourList, Liberal Conspiracy, TUC Touchstone and other prog-blog friends. We will add the link on the blog front ahead of that.

Here are some of the key political debates across the enormous detail of the spending review.

1. Are the cuts real?

A question to which the answer is Yes. There has been a concerted attempt to suggest the biggest spending cuts for 90 years are no big deal. John Redwood is among those to point to spending totals rising in nominal terms - a soundbite which lacks weight with most thoughtful observers among the pro-cuts advocates on the political right.

Tim Montgomerie of ConservativeHome wrote a cogent piece on Monday about why a the cuts won't hurt argument would simply leave pro-government supporters stranded in a parallel universe, "out-of-touch with the real world".

In response, Spectator editor Fraser Nelson has crunched some numbers. He says in context, the real terms total cuts to government spending will be 3.7% over 4 years. What his helpful numbers also show is that the rising costs of unemployment along with debt interest payments will mean 8% more being spent on Annual Managed Expenditure. This means 13.3% cuts - £61 billion - failling from £380 billion to £329 billion in today's money between 2010/11 and 2014/15 - in departmental spending. Factor in the ring-fencing of some budgets, and all £61 billion is coming from other departments, averaging 18% and higher in several cases. (And don't forget ring-fencing the NHS isn't going to feel like no health cuts: there is a cogent argument not to ring-fence all health spending; however demographic pressures inevitably increase costs on care for those over 75 and over 85, small real terms increases will require some sharp cutbacks in health services too).

One thin silver lining of the last two months is that almost every government minister and right-wing commentator has come to value public spending in at least some areas - counter-terrorism, defence, policing, infrastructure for growth, local public services, children's services and so on - leaving the core Taxpayers' Alliance that most spending is just waste looking sillier than ever before.

2. Whose responsibility is the deficit?

The government has done well to establish a public narrative that the deficit is the result of Labour over-spending, even though the facts show otherwise. The difference in the deficit would be miniscule had the Conservatives been in office from 2005, because the primary cause was the necessary response to the (existential) financial crisis of 2008.

Jonathan Freedland captures why this matters to the future political debate in his Guardian' column today:

If Labour's spending was so wildly out of control, why did the Tories promise to match their plans, pound for pound, all the way until November 2008? Why didn't Osborne and Cameron howl in protest at the time?

Could it be because things were not actually that bad? A quick look at the figures confirms that, until the crash hit in September 2008, the levels of red ink were manageably low. The budget of 2007 estimated Britain's structural deficit – that chunk of the debt that won't be mopped up by growth – at 3% of gross domestic product. At the time, the revered Institute for Fiscal Studies accepted that two-thirds of that sum comprised borrowing for investment, leaving a black hole of just 1% of GDP. If the structural deficit today has rocketed close to 8%, all that proves is that most of it was racked up dealing with the banking crisis and subsequent slump – with only a fraction the result of supposed Labour profligacy. After all, even the Tories would have had to pay out unemployment benefit.

3. Can the cuts be fair?

Claims to progressive austerity have become more muted recently. It is evident to all serious analysts that spending cuts on the scale proposed by the government - to eliminate the deficit in one parliament - will surely impact the less well-off disproportionately. Tim Horton and Howard Reed have produced the fullest pre-CSR analysis - published by the TUC - of the distributional impact of public spending and what we knew in advance about the shape of the cuts, and plan to report back this week with their post-CSR headline findings.

The government would demonstrate greater political maturity than in losing their June to August spat with the Institute of Fiscal Studies over their "regressive" first budget if they take the advice of supportive critics like Evan Harris and simply acknowledge that: the cuts can't be fair, but they are doing their best to mitigate the unfair impact, rather than again entering another row on which Ministers are evidently wrong on the facts.

Anybody seeking to then at least follow the "progressive austerity" goal of spreading the pain as evenly as possible would look at genuine alternatives, particularly in the balance of spending and taxation and the speed of overall deficit elimination.

4. Will cuts on the scale proposed prove possible?

David Cameron is particularly keen to "reframe" departmental cuts of 18-25% as "just 5-6%" a year, suggesting many businesses have to find such efficiencies.

If you follow the logic through, what sounds somewhat plausible for this year becomes a very weak argument from the second and third years of cumulative spending cuts.

Imagine you are in charge of, say, justice, policing, transport or children's services in a particular area. Initial cuts of 6% are almost certainly going to involve job losses and cutting back services, but will doubtless prove possible if painful. However intelligently such cuts are attempted to try to preserve service quality, the second 6%, the third 6% and the fourth 6% must inevitably cut much closer to the bone. This is where a significant question mark of whether the government can really make the cuts it proposes comes in, especially in the third year of what is proposed.

The government is strongly committed to its "no alternative" rhetoric and policy. And yet it may yet be that the hidden long-term story of the spending review may involve the government seeking to converge - perhaps rhetorically at first - towards Labour's position of slower cuts, and taking risks to growth more seriously than they have to date. They may yet be forced to rethink the tax/spending balance by mid-term.

5. How can the spending review democratic deficit be closed?

Hilary Benn rightly points out for Left Foot Forward that one hour of debate and no vote today - followed by one day of debate in eight days time - is an absurd lack of Parliamentary scrutiny for the most significant moment, not least for a government which pledged to put the Commons back at the centre of our public and political life.

This is exacerbated by the evident lack of any electoral mandate for what is being proposed. I find it very difficult to believe that David Cameron could have believed, in his own mind, that what he was saying in the final week of the campaign. If he did, he has been on a very steep learning curve to drop his view that most government spending is waste and can be painlessly cut with no loss to anybody.

And there is a deeper issue here too. The spending framework announced in outline form today involves, implies and entails massive policy choices, very few of which have had any political or public scrutiny at all. To name just two: should social housing tenures for life be ended? Should there be no state funding of university tuition in the humanities? There will be dozens more where it make take some days to even spot the question being (implicitly) proposed by the Coalition.

By the time the media and departmental select committees try to get their teeth into what the CSR means, the government will be extremely resistant to unpicking the package it has painfully collated behind closed doors over the last two months.

Yet the rapid unravelling of the policy detail and implementation of the government's child benefits cut a fortnight ago revealed a high level of negligence in working through the proposal which the main governing party planned to put up in lights at its party conference. does not augur well for the quality of thinking behind much of the hidden policy detail underpinning today's announcement, where the government can reasonably anticipate that so much less attention will be paid to dozens of larger spending decisions.

So it will be worth watching today's announcement closely, and looking at the numbers published alongside it. It will take some days - and weeks and months - for what is being proposed today in key policy areas to become clear.

1 comment:

"the primary cause was the necessary response to the (existential) financial crisis of 2008"

Absolute poppycock! This is a downright lie - proof positive that Labour and the Fabians, still unable to offer any practical solution to the problems they've bestowed on the nation, have gone into full-on deficit denial mode, deliberately confusing the debt with the deficit.

1. Brown ran a deficit every year since 2002. Most of this was during a period of 'record growth' during which time the opportunity to reduce the national debt was never taken. Structural spending has exceeded income every year since, and this is nothing to do with the recession. THERE IS A VAST STRUCTURAL DEFICIT WHICH HAS BEEN CREATED BY BROWN'S FAILURE TO ABIDE BY HIS OWN 'GOLDEN RULE'.

2. The ONS shows very clearly here the recapitalisation of the banks was a one-off expense (the deficit, represented by the gradient of the curve, this year is the same whether or not you incclude the financial interventions) - to suggest that this year's deficit is due to an expense incurred two years ago is wholly disingenuous. THIS YEAR'S STRUCTURAL DEFICIT HAS NOTHING TO DO WITH BAILING OUT THE BANKS. (Indeed the appreciation in value of the public stake in the banks and the dividends received will actually serve to REDUCE the national debt and budget deficit respectively).

3. The banking crisis itself and the subsequent credit crunch and massive recession it caused could have been avoided by properly regulating the banks. Brown was too obsessed with the tax they paid to care how their 'profits' were earned. THE BANKING CRISIS WAS THE INEVITABLE OUTCOME OF A DECADE OF RECKLESS REGULATORY NEGLIGENCE - A SERIOUS DERELICTION OF RESPONSIBILITY - ON THE PART OF GORDON BROWN

4. 'Investment' in jobs is a complete misnomer. YOU CANNOT INVEST IN AN OVERHEAD. PERIOD. Investments come straight back onto the balance sheet. Wages are simply lost. To term the 'creation' of jobs out of thin air by spending tax revenues on wages (often paid to economic migrants creating new load on pubic services) an 'investment' is an economic deceit. THE ONLY CLUE THAT THIS SO-CALLED 'INVESTMENT' WAS EVER MADE IS THE DEBT THAT IT CREATED. LABOUR'S 'INVESTMENT' IS A LIE.

5. The assertion that the Tories might have taken the same actions may or may not be correct, but is entirely irrelevant. Who took the decisions? THE DISASTROUS STATE OF THE ECONOMY FOLLOWS 13 YEARS OF BROWN'S MISMANAGEMENT IN A LABOUR GOVERNMENT.